New Overtime Rules Start Jan 1!

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In September, the U.S. Department of Labor issued a new rule that takes effect January 1, 2020. Up to 1.3 million workers that previously weren’t eligible for overtime pay will soon qualify for one and a half times their regular hourly rate when they stay more than 40 hours a week. Whether you’re an employer or a salaried worker, here’s what you need to know.

Salaried Workers and Overtime Pay

According to the Fair Labor Standards Act, employees should receive one and a half times their hourly pay when they work more than 40 hours a week, unless they have exempt status. Currently, that exemption applies to salaried workers who make over $23,660 a year or $455 a week.

A salaried worker makes a fixed amount set by their employer. Their pay isn’t hourly, they make the same amount monthly or annually no matter how many hours they work. Employers expect them to complete agreed-upon duties even if that means working more than 40 hours a week.

Nobody likes having to stay extra, but employees with a high salary understand that’s just part of the job. When employees don’t qualify for overtime pay because they receive a salary, that’s called exempt status. Currently, for workers whose salary is under $24,000 a year, working overtime means sometimes they earn well under minimum wage.

What’s About to Change

The threshold of $23,660 was established in 2004, and a lot has changed since then. Starting in January 2020, workers with salaries up to $35,568 annually or $684 per week will be eligible for overtime pay. Employers will have to reclassify more than a million workers that were previously exempt from overtime pay.

The rule also mandates changes for highly compensated employees. Until now, employees who made $100,000 or more a year and had specific duties and responsibilities were exempt from overtime pay. As of January 1, 2020, that threshold increases to $147,414 per year, an almost $50,000 increase. Employers can count bonuses, incentives and commission toward a percentage of the standard salary requirement.

How Employers Can Prepare

If any of your employees make less than the new threshold, you have two options:

  • Increase their salary to the new threshold so they still qualify as exempt.
  • Re-classify them as non-exempt, start tracking their time and pay them overtime on weeks where they put in more than 40 hours.

You might not choose the same option for all employees. For example, some may only work more than 40 hours a week during the busiest times of the year. Paying them time and a half overtime will cost less than raising their salary by thousands of dollars. However, if you have workers that work long hours all the time, it may cost less to raise their salary than to pay them overtime every pay period.

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